2/12/2010 @ 4:10PM

Motorola's Surges On Plans To Split

Investors called in their approval for
Motorola
Friday after the telecom company announced its long-anticipated move to split into two publicly traded companies.

One year after talk of a split was first floated,
Motorola
said Thursday it revised its plan to one that combines its mobile devices and home units into a consumer-focused company and its enterprise mobility and networks units into a company targeted at government and corporate customers. The split will take place by early 2011. Co-Chief Executive
Sanjay K.
Jha
Sanjay K. Jha
will head the mobile company while fellow Co-Chief
Gregory Q.
Brown
Gregory Q. Brown
will lead the enterprise business. (Watch “Motorola Heads For A Split.”)

Shareholders will get a tax-free stock dividend of shares in the new companies when Motorola splits. Excitement over the news and potential benefit for investors led Motorola’s shares to rally 7.5% to close at $7.15 in trading in New York.

There has been speculation about whether the mobile devices unit, which is not yet profitable, would be able to survive without support from Motorola’s more profitable enterprise units. Jefferies analyst William Choi kept a “Hold” rating on Motorolas stock but said the “separation plans for the company provide clarity for strategic direction.”

Oppenheimer analyst Ittai Kidron noted that the proposed split should leave both sides of the company more nimble in getting products to market. Kidron reiterated an “Outperform” rating on Motorola shares.

Citi Research analyst Jim Suva noted that he was modestly surprised by the timing of the separation, but “the bigger surprise in our view is the timing of [Thursday's] announcement.” The analyst believes it “reflects confidence” in the turnaround capabilities of Motorola’s mobile devices unit.

Motorola’s mobile devices division did improve last quarter after the debut of two new smart phones, the Cliq and the Droid, but the planned launch of 20 new smart phones this year will continue to pressure the company’s bottom line. Motorola has been making a push into the smart phone sector using
Google’s
Android mobile software, in an effort to compete with
Nokia
,
Apple’s
ever popular iPhone and
Research In Motion’s
Blackberry.

Meanwhile,
Microsoft
, which was dominant early on in the smart phone sector, is expected to announce a major revamp of its phone software next week in an attempt to regain momentum in the growing market. The new software, to be presented at an industry trade show in Barcelona, Spain, is expected to be more consumer-focused than previous versions. The device should offer a simplified user interface, which may borrow aspects of Microsoft’s well-reviewed but unsuccessful Zune HD media player, according to the Associated Press.

Motorola said in 2008 that it would prepare to spin off its cell phone division (See “Motorola To Split“), which has struggled against stiff competition. The plans were later postponed, but when the cell phone maker reported fourth-quarter earnings late last month, Jha reiterated that the spinoff would happen but that the timing would depend on the performance of his mobile devices division, the state of the handset market and the condition of the overall economic environment. (See “Smart Phones To Squeeze Motorola’s Profits.”) Brown said Thursday that Motorola decided to reveal its plans early to give customers, employees and investors “greater clarity” and ensure adequate time to untangle the various businesses.